What happened

Shares of Coty (NYSE:COTY) were falling again today as investors continued to react to a disappointing earnings report from Monday and news that the company was selling a majority stake in its professional beauty business. An analyst downgrade on the stock this morning and a broader sell-off in the market helped push the stock lower, as well.

As of 12:12 p.m. EDT, the stock was down 15%, which followed an 8% loss on Monday and a 9.4% slide yesterday.

A woman looking in the mirror and putting on eye makeup

Image source: Getty Images.

So what

Coty said on Monday that revenue in the third quarter fell 23.5% to $1.53 billion, due to the impact of COVID-19. Organic sales, which exclude the impact of acquisitions and divestitures, were down 19.5%, slightly below analyst estimates at $1.55 billion.

On the bottom line, the cosmetics company posted an adjusted operating income of $0.1 million, down from $229.5 million in the quarter a year ago. On a per-share basis, Coty finished with a loss of $0.08, compared to a profit of $0.13 a year ago. That was also worse than expectations of a loss of $0.01 per share.

Additionally, Coty sold a 60% stake in its professional beauty and hair-care business to private-equity firm KKR for $4 billion, which includes $1 billion in convertible shares on favorable terms for KKR and $3 billion in cash. The sale will help Coty deleverage its balance sheet, and the market initially cheered the move. However, the stock soon after succumbed to pessimism about the cosmetics-maker's future. 

This morning, Exane BNP Paribas downgraded Coty stock to neutral from outperform, as analyst Mikheil Omanadze said the company is still facing structural issues as it was in the middle of a turnaround before the pandemic hit.

Stocks also fell broadly after Federal Reserve Chairman Jerome Powell gave cautious remarks on the economic recovery.

Now what

Coty stock looks cheap now, trading at less than $4/share, and the KKR deal will certainly help with its finances. But cosmetics sales could be down for the foreseeable future as the pandemic keeps people at home making large gatherings essentially impossible, reducing the need for personal-beautification products. The company has said it will cut $700 million from its fixed costs this year, but it will likely be several quarters before business returns to its previous levels.

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